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Cyient Ltd., formerly known as Infotech Enterprises, is one of the leading players in the IT-enabled services space, providing services to the Engineering Research and Development segment.

* Cyient reported a strong quarterly result with a revenue of Rs.1,618.2 cr, up 36.7% YoY, led by the services segment. The revenue from services was Rs. 1,379.8cr expanded by 43% YoY and DLM grew by 10% YoY to 238.4cr.

* EBIT expanded by 30.8% YoY to 213.4cr and PAT at Rs.156cr with growth of 18.4% YoY, respectively, on improved operational efficiencies and favourable currency change.

* The company closed deals on five contracts worth a total of $59.2 million during the quarter, which will boost revenue in the future.

* We expect a positive revenue mix (Aerospace, Mining, Communications & Automotive), with a recovery in the Rail & Aerospace sectors, a healthy deal order pipeline, an improvement in revenue from acquisitions, etc. The margin is anticipated to increase in FY24E due to automation and cost-control measures.

* Considering the attractive valuations, we upgrade our rating to BUY with a target price of Rs. 1,076 based on 15x FY25E EPS.

Strong deal wins support long term revenue growth.

Cyient reported a strong quarterly result with a revenue of Rs.1618.2cr, up by 36.7% YoY, led by the services segment. The revenue from services was Rs. 1,379.8cr expanded by 43% YoY and DLM grew by 10% YoY to 238.4cr. The growth in services segment was driven by the Semiconductor, Automotive, Energy and Mining business. In the ARC segment, Aerospace reported 8.1% YoY growth and Communications witnessed 21.2% YoY growth, while as usual Rail transportation showed a degrowth of 21% on YoY basis in dollar terms. New Growth Areas & Mining, Energy and Utilities (MEU) registered a growth of 26.1% & growth of 3.4% YoY growth respectively in dollar terms. During CY23, the management anticipates aerospace revenue to expand by double digits as a result of China's relaxation of travel restrictions. The company signaled a recovery in Rail transportation at the start of FY24. Cyient filed a DRHP with the SEBI on entering global electronic manufacturing business by divesting its DLM business. The deal wins remain solid, and the company won five sizable contracts worth a combined $59.2 million during the quarter (2 each from Aerospace and Energy & Utilities & 1 from Automotive and mobility) that would improve revenue in FY24E

Attrition Cooled and Productivity Increased

Cyient reported robust EBIT growth of 30.8% YoY to Rs.213.4cr and PAT at Rs.156cr with growth of 18.4% YoY, respectively, on improved operational efficiencies, removing low margin revenues and favourable currency impact. Net addition in headcount declined by 311 and attrition declined 190bps QoQ to 26.5%. Thus, utilization rate improved by 630bps QoQ to 90.9% during this quarter. The company witnessed legal and acquisition related charges, pressurising EBITDA margins in FY23. However, margins are likely to improve in FY24E & FY25E by 16.7% and 17.3%, respectively, on cost control measures.

Stable Revenue Guidance

In FY24E, management anticipates revenue of $1 billion at a run rate of EPS Rs.60 per share. The company has given revenue guidance of 13-15% YoY in CC organic terms, and 14–15% in inorganic terms, EBIT margin guidance of 13–14%, and normalized EBITDA guidance of around 16-17% for FY23.

Valuation

We expect a positive revenue mix (Aerospace, Mining, Communications & Automotive), with a recovery in Rail transportation & Aerospace sectors, a healthy deal order pipeline, an improvement in revenue from acquisitions, etc. The margin is anticipated to increase in FY24E & FY25E due to automation and cost-control measures. Considering the attractive valuations, we upgrade our rating to BUY with a target price of Rs. 1,076 based on 15x FY25E EPS.

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